PRC OKs, Sends 5.4% Rate Hike to USPS Board

The Postal Rate Commission approved a 5.4 percent across-the-board postage rate increase with some exceptions. The matter now goes to the U.S. Postal Service Board of Governors, which said it would vote on final approval Monday.

If approved, the rates likely would take effect Jan. 16, though some in the industry have asked for a delay so mailing software can be updated.

Meanwhile, postal watchers hope reform legislation is passed that would make the increase unnecessary.

PRC chairman George Omas said the 5.4 percent increase is well below the rate of inflation for the past 3 1/2 years, which is the last time rates rose.

"The last rate case came just after the Sept. 11 attacks and the discovery of letters containing anthrax," he said. "Everyone had concerns about the financial stability of the postal service, and the commission suggested that prompt action on that request was particularly important. Not only was a settlement reached in that case, but the postal service and the rate commission then sponsored a joint summit to find ways to simplify the system for adjusting postal rates."

As a result, Omas said, the USPS has focused on mailers' preference for small increases.

"In this case, it chose not to request funds for more speculative, contingent expenses, instead limiting its request to the amount needed to fund a statutory obligation," he said.

The rate case was unique in that the decision to seek an increase was based solely on a requirement of the Postal Civil Service Retirement System Funding Reform Act of 2003 that the USPS establish a $3.1 billion escrow fund. Though the act helped the postal service avoid overfunding its Civil Service retirement obligation by reducing its payments to the program, it also called for the creation of the escrow account starting in 2006, and use of that money is subject to Congress' direction.

"These rates will not pay for anything that has anything to do with the operation of the postal service or the delivery of mail -- salaries, benefits, operations, fuel, buildings," USPS spokesman Gerry McKiernan said. "They are simply needed to fulfill an obligation created by a law that was passed three years ago."

Mailers are waiting to see whether a bipartisan reform bill (S. 662) sponsored by Sens. Susan Collins, R-ME, and Tom Carper, D-DE, will be taken up by the full Senate this year. The Senate Committee on Homeland Security and Governmental Affairs approved the bill for floor action in June. The House bill, H.R. 22, passed 410-20 on July 26.

The bills would eliminate the funding requirement. And should legislation be enacted that eliminates the escrow funding requirement, this rate case will be withdrawn, the USPS has said.

"It's our hope that the Senate will enact postal reform in time to make today's recommendation unnecessary," said Tom Davis, R-VA, House Government Reform Committee chairman.

Though the PRC recommendation calls for a rate and fee increase around 5.4 percent for nearly all mail classes and subclasses, Omas said, different rate changes were necessary in some areas to comply with statutory requirements. For example:

* Rates for small local newspapers will decrease 2.3 percent.

* Rates for solicitations from nonprofit organizations also vary. Generally, Nonprofit Standard Mail will rise 3 percent while Nonprofit Enhanced Carrier Route mail will increase 12.3 percent. In all, nonprofits will pay $17 million less than requested by the postal service.

* The book rate will increase 12.7 percent. By law, all classes of mail must cover their direct cost of service, and books, CDs and library materials would otherwise violate this requirement.

The Direct Marketing Association said that it generally supported the PRC decision, though the DMA Nonprofit Federation expressed concern about the double-digit increase for enhanced carrier route nonprofit mailings.

"While we understand that the commission felt constrained by statutory requirements, that does not alleviate the pain of a 12.3 percent increase for nonprofits that are working so hard to keep overhead costs to a minimum," executive director Senny Boone said.

But Neal Denton, executive director of the Alliance of Nonprofit Mailers, called the PRC decision a "good one that protects nonprofit mailers in the short and the long term. We expect that a vast majority of nonprofits will save significant sums as a result of this alteration."

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